U.S. District Judge Richard Sullivan ultimately decided that ReDigi's platform violates the Copyright Act of 1976, because in transferring a file from one system to another, that file is technically being duplicated -- even if at the end of the process, only one version of the file exists.

This marked the second time that ReDigi and Capitol Records argued before Sullivan. The last time they butted heads in his court, he refused Capitol Records' preliminary injunction to shut down ReDigi. This time around, though, Sullivan ruled in Capitol Record's favor, and ReDigi faces paying the label as much as $150,000 per infringement.

ReDigi, which set up shop in 2011, provides software for users to upload their MP3s to a cloud-based storage locker. From there, users can sell their digital tracks to other users. ReDigi maintains it verifies that files users upload were acquired legally and it automatically scours sellers' systems to ensure they aren't keep copies for themselves.

RedDigi tried to convince Sullivan that under the first-sale doctrine, individuals should be able to resell legally owned digital recordings with the same freedom that they can resell legally purchased physical items, such as CDs, DVDs, and books.

Sullivan, however, was unswayed by ReDigi's case, stating that ReDigi's platform directing and indirectly violates the Copyright Act of 1976: When users sell their MP3s through ReDigi, he said, ReDigi is technically making new copies of file. He likened the process of moving data from one server to another to the process of recording a vinyl record onto a cassette tape, which is also a copyright violation. "When a user downloads a digital music file or digital sequence to his hard disk, the file is reproduced on a new phonorecord within the meaning of the Copyright Act," he wrote. "This understanding is, of course, confirmed by the laws of physics. It is simply impossible that the same material object can be transferred over the Internet."

Sullivan said in his ruling that his decision limited by the Copyright Act of 1976, which he noted was crafted at a time when lawmakers didn't anticipate technology that would enable individuals to transfer music and the like digitally. "The court cannot of its own accord condone the wholesale application of the first-sale defense to the digital sphere, particularly when Congress itself has declined to take that step."

The trial isn't quite over: Sullivan ordered both ReDigi and Capitol Records to submit joint letters to the court by April 12 concerning the next steps in the case.